CO₂ accounting vs. life cycle assessment

“Carbon accounting and life cycle assessment are two important tools for gaining clarity about a company’s environmental impact.”

Introduction

Sustainability is no longer just a trend, but a necessity. Companies are under increasing pressure to minimize and record their environmental impact and improve their sustainability strategies. Two important concepts in this context are carbon accounting and life cycle assessment. But what exactly are the differences and why are they relevant for companies?

We passed on precisely these questions to one of our experts – our sustainability consultant with a focus on accounting, Marnie Schmidt.

What is CO2 accounting?

CO₂ accounting, also known colloquially as a “CO₂ footprint”, is a specialized approach that focuses on recording and calculating greenhouse gas emissions. The accounting can be carried out for individual products or the entire company, for example, and provides information on where emissions occur, whether in production, the supply chain or the use of products. In addition to carbon dioxide emissions, other greenhouse gases such as methane (CH₄) and nitrous oxide (N₂O) are also taken into account in accordance with the Kyoto Protocol. These emissions are converted into CO₂ equivalents in order to create a uniform measure for the various greenhouse gases. Targeted reduction measures can be derived from the CO₂ accounting and unavoidable emissions can be compensated for afterwards.

What is life cycle assessment?

Life cycle assessment goes one step further and looks at the entire “environmental footprint”. It includes various impact categories such as water consumption, soil acidification and greenhouse gas emissions, including CO₂ accounting. Life cycle assessment therefore offers a more comprehensive perspective on environmental impacts that go beyond CO₂ emissions.

Why are these balance sheets important?

Both methods give companies a better understanding and more transparency about their environmental impact. While life cycle assessments are not currently mandatory, there is a need for action in the area of carbon accounting. Under the Corporate Sustainability Reporting Directive (CSRD), companies in the EU are obliged to prepare a sustainability report under certain conditions when the CSRD is transposed into German law.

Companies need to understand which areas of their operations have the greatest impact on the climate in order to take effective measures for reduction and compensation. Carbon accounting provides a clear, standardized method for measuring and communicating greenhouse gas emissions both within the company and to external stakeholders.

The limits of life cycle assessment

Although LCA provides a comprehensive view of a company’s environmental impact, there are some challenges that limit its use. One of the biggest difficulties is data availability and quality. There are different metrics and data requirements for each LCA impact category, which makes it difficult to compare and evaluate the results.

As there are already established methods, extensive databases and reporting requirements (CSRD) for carbon accounting, companies and legislators are currently focusing more on this aspect than on life cycle assessment.

Challenges during implementation

The implementation of both types of carbon accounting presents several challenges. A common issue is the availability of necessary data. Many companies do not have this data readily available, as it is not required for day-to-day operations. Another challenge lies in capturing the full value chain. This is especially relevant for companies subject to the CSRD, as they must also account for downstream data, such as logistics, product use, and disposal.

To simplify this process, we recommend an initial baseline assessment for our clients. This helps establish the necessary infrastructure and adapt to new regulations, enabling a more efficient carbon accounting process in the future.